Ateneo de Naga UniversityDepartment of Social Science

Pineapple Wine

InstructorMr. Manny Abejero

Submitted by:Bico, Yentl Arellano, Jessica R.

BECM214-Advanced microeconomics N11st Semester, S/Y 2013-2014INTRODUCTIONThis study aims to provide means of producing wine at a cheaper cost and high revenue. The scope of the study starts from the collection of raw materials which is fresh pineapple fruit and be able to convert such fruits to a wine called pineapple wine. The study also includes the treatment of the waste materials produced from the process.

COMPANY PROFILE

Name and Logo of the Product

Bicollano Pineapple Wine Corporation

OBJECTIVESThe companys objectives include the following:

To increase profit by producing pineapple wine from pineapple at a reasonable but profitable price. To be locally and globally, competitive in terms of quality, price, and service. Be able to contribute in the economic status of Naga City

STATEMENT OF THE COMPANY

To manufacture, distribute, and sell, ready at all times to add or modify production in accordance with the changes in the market. To sufficiently generate revenue that will ensure an adequate company growth rate and also increasing profit. To maintain the highest ethical standards in the conduct of the business. To facilitate both personal and professional development of employees. To be socially and environmentally responsible

SIGNIFICANCE OF THE STUDY

This study may be beneficial for the following persons:The business-oriented persons. This study may give them insights on establishing pineapple Industry in BICOL as a good income-generating business. The results may also help them in considering Daet, Camarines Norteas where pineapple plantation is as a the business-friendly urban place where they could start their planned business.The pineapple farmers. This study may help them in understanding that their pineapple plantations could also be used for production of wine and not only traditional products (pineapple juice, pinapple jam,, etc). They could maximize the use of their coconut plantations in producing pineapple wine.The alcoholic drinkers. This study may encourage them to choose Philippine products like pineapple wine instead of other branded alcoholic beverages. Pineapple is not only the cheap, but it is also has healthy effects for your body). And also, if pineapple wine is readily available in Daet , it would be easier to buy and much cheaper than other pineapple wine brands from Luzon.The government officials. This study may provide them awareness on the current performance of the pineapple industry that should be given more focus since the Philippines is a tropical country and they could make use other than coconut which is pineaple. It could also aid in formulation of laws regarding the industry.The future researchers. This study may give them information and insight on the pineapple wine industry and its feasibility within Bicol and neighboring areas. This may also enlighten them with new ideas concerning the industry that may help in boosting the countrys economy.

THE INDUSTRY AND ITS ANALYSISThis chapter discusses profile of the major players in the Philippines pineapple wine industry. It discusses their services, the market, performance, the services they provide to their clients. It also includes the identification of government agencies concerned and an analysis of the strengths, weaknesses, opportunities and threats, and key success factors of the pineapple wine industry.Industry BackgroundThe worldwide production of pineapple reached in 2001 the amount of 14 million tons. 1,6 million tons have been cultivated in the Philippines, which takes now ranking place 2 in the world production after Thailand ( 2,3 million ). Also ranking place 2 with 21 % has the pineapple production in domestic agricultural production of fruits and nuts - behind the cultivation of banana (62%). The pineapple cultivated area in the Philippines is estimated at round about 44,000 hectares. More than seventy % of these areas are situated in the provinces of Northern and South-Mindanao. About 30 % of pineapple production is exported, one third as fresh fruit export, two third as processed fruitsToday, the country produced 648.78 thousand mt of pineapples this quarter or 1.1 percent higher than the 641.72 thousand mt output in 2013.The increase in production was brought about by the following:more area harvested in Central Visayas, Northern Mindanao and Central Luzon; bigger fruits developed in Ilocos and Davao regions; increased in yields in ARMM and Cagayan Valley due to proper application of fertilizer; and, induced fruiting stage caused by extended hot weather in MIMAROPA.The top producers were Northern Mindanao, SOCCSKSARGEN, CALABARZON and Bicol Region with a combined share of 91.7 % to the national pineapple production.In recent years, the product has been launched onto the world market, and it is hoped that this industry will grow. This would, however, necessitate the planting of more pineapple , since production is dependent upon the amount of fruit collected every harvesting season. As far as the environment is concerned, the pineapple industry does not pose any major threats, since it is in their best interests to encourage more pineapple planting. Both the product and the process do not include any harmful chemicals; in fact, it is being marketed as an organic product.In the Philippines Camarines Norte ranks fourth nationwide in terms of area planted to pineapple. Bukidnon is number one with 16,000 hectares, followed by South Cotabato at 10,100 and Cavite, 5,000. The province's prime agricultural product is the "Queen of Formosa" pineapple. Noted for its sweetness and flavor, this kind of pineapple is produced only in Camarines Norte, thereby making it a specialty in the province.

DEMAND FOR WINE Historical Supply and Demand of Wine

Q18,000,000.00u16,000,000.00a14,000,000.00 Demandn12,000,000.00 Supplyt10,000,000.00i8,000,000.00t6,000,000.00y4,000,000.002,000,000.00Liters 0.001990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Alcohol Drinking Among Filipinos (WHO, 2004; DOH-UP, 2001)Total recorded per capita consumption of Filipinos is 3.75 litres of pure alcohol for those litres of pure alcohol for those 15 years and above years and above and increases by 10% every year (Filipinos only third to Thailand and Japan).

A 21 year projection starting from the years were datas are not available to compensate in the projection the years that was referring to was from 2000-2004 on where the insufficient records from the NSO was not available. As you can see there is a growing demand for wine here in the Philippines. Although the Statistical Parabolic Method obtained the lowest standard deviation was not used due to the fact that after the year 2014 there will be a negative demand for wine which is not true for there will always be a demand for wine and using this method cant be relied upon. Thus, the next lowest standard deviation from the method of projection was adopted for this study which is the Arithmetic Straight Line.

FACTORS AFFECTING DEMAND FOR WINEConsumption of alcohol 38.9% of Filipinos are occasional alcohol drinkers, 11.1% are regular drinkers (13% males and 5.9% females) while females) while 4.8% are heavy drinkers ( % are heavy drinkers(6.6% males and % males and1.3% females) though children.Filipino drinkers drink beer (78.5%) q , liquor--rum, gin, whisky and lambanog (70.6%), and wine, tuba, sangria, sherry (42.4%) .Filipinos drink to socialize (45.5%), to remove stress and burden (23.8%), or just be happy and gain pleasure (17.5%).60% of Filipino youth ages 13 years and above have taken or are taking alcoholic beverages79% males and 21% females. Figures for moderate and heavy drinkers among the young and women from 2001-2004 are found to be increasing, still with more males at males at 66.6% and women slowly catching up at % and women slowly catching up at 33.4%.Drinking is still more acceptable among males among the young, and those likely to drink are those who are not living with their and those likely to drink are those who are not living with their parents, whose parents approve of drinking, who frequent social gatherings or parties, bars and discos and those who do not normally take part in any sport activity.DRINKING AS A TRADITIONAlcohol drinking has been traditionally associated with happiness, success, thrill and sexual prowess, especially for the males contemporary images of the young and for the males, contemporary images of the young andthe women emerging.Alcohol is projected as part of the day-to-day lives as portrayed in soap operas, basketball leagues, comedy shows and music video channels.

FASHION AND TASTETaste of people affects the demand of a commodity. CHANGES IN POPULATIONAn increase in population will result in a rise in demand and vice versa.IndicatorsLatest DataCompared toPercent Change

Reference PeriodValueReference PeriodValue

Total PopulationMay 1, 20105,420,411Aug. 1, 20075,106,1606.2

Provincial Population

- AlbayMay 1, 20101,233,432Aug. 1, 20071,187,1853.9

- Camarines NorteMay 1, 2010542,915Aug. 1, 2007513,7855.7

- Camarines SurMay 1, 20101,693,821Aug. 1, 20071,822,3717.6

- CatanduanesMay 1, 2010246,300Aug. 1, 2007232,7575.8

- MasbateMay 1, 2010834,650Aug. 1, 2007768,9398.5

- SorsogonMay 1, 2010740,743Aug. 1, 2007709,6734.4

City Population

- Iriga CityMay 1, 2010105,919Aug. 1, 200797,9838.1

- Legazpi CityMay 1, 2010182,201Aug. 1, 2007175,8433.6

- Ligao CityMay 1, 2010104,914Aug. 1, 2007101,1793.7

- Masbate CityMay 1, 201085,227Aug. 1, 200781,5854.5

- Naga CityMay 1, 2010174,931Aug. 1, 2007160,5169.0

- Sorsogon CityMay 1, 2010155,144Aug. 1, 2007151,4542.4

- Tabaco CityMay 1, 2010125,083Aug. 1, 2007123,5131.3

Population Growth RateMay 1, 20101.46Aug. 1, 20071.190.3

Population Density(persons per sq.km.)May 1, 2010298.8Aug. 1, 2007281.56.2

Number of HouseholdsMay 1, 20101,111,753Aug. 1, 20071,024,2158.5

Household SizeMay 1, 20104.87Aug. 1, 20074.98(2.3)

Number of Occupied Housing UnitsMay 1, 20101,102,228Aug. 1, 20071,016,0588.5

CHANGE IN PEOPLES INCOMEMore the people earn the more they will spend and thus the demand will rise. A fall in income will see a fall in demand.Statistical SeriesLatest DataCompared toPercent Change

Reference PeriodValueReference PeriodValue

Family Income

- Total(Million Pesos)2009162,5672006126,42228.6

- Average(Thousand Pesos)2009152200612521.5

Family Expenditure

- Total(Million Pesos)2009146,5952006111,59031.4

- Average(Thousand Pesos)2009137200611024.5

Annual Per Capita PovertyThreshold(Pesos)200917,146200613,64525.7

Poverty Incidence(Percent)

-Families200936.0200636.1-0.1

-Population200945.1200645.2-0.1

Consumer Price Index (2006=100)

Region V2012132.42011128.82.8

-Albay2012126.82011124.41.9

-Camarines Norte2012132.02011128.92.4

-Camarines Sur2012132.12011127.63.4

-Catanduanes2012137.82011134.82.2

-Masbate2012138.62011134.23.3

-Sorsogon2012134.72011131.22.7

ADVERTISINGSince an advertisement or Ad is anything that draws good attention towards these things. It is usually designed by an identified sponsor, and performed through a variety of media. Ads appear on television, as well as radio, newspapers, magazines and as billboards in streets and cities. Through the use of these, people will tend toto buy our products, by showing them the good rather than bad of our products.

FACTORS AFFECTING SUPPLY OF WINE

Manufacturing of beer and liquors is one of the most profitable industries in the Philippines. Four of its manufacturing companies i.e. San Miguel Corporation, Tanduay Distillers, Ginebra San Miguel and Asia Brewery has been consistently among the top and Asia Brewery has been consistently among the top 75 among the top 1000 corporations in the country.Despite recorded economic downturn and gloomy outlook for the Despite recorded economic downturn and gloomy outlook for the Philippine economy, sales and consumption of alcoholic drinks are found to remain high and are projected to expand positively. This is due largely to the increasing disposable incomes among the youngand the emerging influence of Western pub drinking. Massive and aggressive advertising helps the alcohol industrachieve its optimum sales where 80% of cost for every bottle is spent on advertising (Health Action Information Network, 2004).The Price of InputsIn addition to the price of the product which is the pineapple wine being the main factor as stated in the Law of Supply, the price of production inputs of making this product also plays a part. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. Producing a good or service involves taking inputs and applying a process to them to produce an output. The output is the finished good or service, and inputs are raw materials, labor, utilities, licensing fees, or even other goods. These inputs are also known as factors of production. If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply. Simarly, a decrease in the price of inputs leads to an increase in supply.The Current State of Production TechnologyProduction of a good involves taking inputs, applying a process to them, and producing an output. Well, production technology is involved in the process part. Increases in the level of production technology can make that process more efficient. When you invest for the latest production technology, the operation becomes more efficient and you are able increase the supply of pineapple wine. If we decided to expand further and add more technological advanced machines the improvements will be guaranteed .This further increases your ability to supply Pineapple Wine since it reduces your labor costs. By automating the process, reliance upon labor is lessened and those resources are released for utilization elsewhere.The Producer's ExpectationsIt doesn't just matter what is currently going on - one's expectations can also affect how much of a product one is willing and able to sell. Due to expected occasions like Christmas, Valentines day, New year there will be an expectation of an increase in demand of wines during this seasons. The tendency of supplier is to increase the current supply for wine because of what they EXPECT to happen in the future.THE TYPE OF COMPETITION ( a Monopolistic Competition)As more or fewer producers enter the market this has a direct effect on the amount of a product that producers (in general) are willing and able to sell. More competition usually means a reduction in supply, while less competition gives the producer a opportunity to have a bigger market share with a larger supply. Since BICOLLANO COMPANY is not just the only seller of wine in the business, the company is ina monopolistic competition. We sell differentiated products that are somewhat different, or areperceivedto differ, even though we serve a similar purpose to other companies in the wine industry. We created a differentiated product by quality style, convenience, location, and brand name through it buyers will tend to switch and buy our product. By making consumers aware of product differences, sellers exert some control over price.

COST OF MAKING PINEAPPLE WINE Operating and Fixed CostsVariable operating costs were separated into the following eight categories:

Pineapple Packaging Taxes and fees Full- and part-time labour Marketing Utilities, office supplies, and miscellaneous

Fixed operating costs were separated into the following six categories: Insurance Property tax Maintenance Depreciation Loan interest expense Cost of equity

PineappleQueen or Formosa variety, a small-sized sweet-tasting fruit t weighs to about 0.45 to 0.95 kilogram. The farm gate price of fresh pineapple fruit is Php 4 per piece and is sold at about Php 6 per piece in the market. We , the Bicollano Pineapple Wine Corporation is able to get our own supplier wherein we can buy 3 pesos per piece weighing 0.95 K.

Packaging costPackaging costs, including bottles, labels, corks were gathered by surveying several suppliers. The lowest quote for the packaging products was used to determine total packaging costs.500ml wine bottle container cost 8 pesos per piece from our supplier Zibo Chuangyou International Trade Co., Ltd. which they provide the cork and the label for our product.

Taxes and fees According to the REPUBLIC ACT NO. 6956 Sec. 139. Wines. On wines there shall be collected per liter of volume capacity the following taxes:chanroblesvirtualawlibrary"(a) Sparkling wines regardless of proof, Twenty-six pesos; chan robles virtual law library"(b) Still wines containing fourteen percent (14%) of alcohol by volume or less, Three pesos; and "(c) Still wines containing more than fourteen percent (14%) of alcohol by volume, Eight pesos. "Fortified wines containing more than twenty-five percent (25%) of alcohol by volume shall be taxed as distilled spirits. Fortified wines shall mean natural wines to which distilled spirits are added to increase their alcoholic strength."

Our pineapple wine only have 10.6 % alcohol content which means that we have to pay 3 pesos by volume.FEES;Verify and reserve the company name with the Securities and Exchange Commission (SEC) PHP 40,Notarize articles of incorporation and treasurer's affidavit at the notaryphp 500,Register the company with the SEC and receive pre-registered Taxpayer Identification Number (TIN)Cost: (PHP 2,066.14 filing fee equivalent to 1/5 of 1% of the authorized capital stock or the subscription price of the subscribed capital stock, whichever is higher but not less than PHP 1,000 + PHP 19.26 legal research fee (LRF) equivalent to 1% of filing fee but not less than PHP 10 + PHP 500 By-laws + PHP 150 for registration of stock and transfer book (STB) required for new corporations + PHP 320 STB + PHP 10 legal research fee for the By-laws),Pay the annual community tax and obtain the community tax certificate (CTC) from the City Treasurer's Office (CTO) PHP 500 ,Obtain the business permit to operate from the BPLO Cost: (PHP 2,408.05 business tax (25% of 1% of paid-up capital) + PHP 200 mayors permit + PHP 150 sanitary inspection fee + PHP 50 signboard fee + PHP 300 business plate + PHP 100 QCBRB + PHP 545 zoning clearance + PHP 1,300 garbage fee+ PHP 300 FSIC (10% of all regulatory fees,Apply for Certificate of Registration (COR) and TIN at the Bureau of Internal Revenue (BIR)PHP 100 (certification fee) and PHP 15 (documentary stamp tax, in loose form to be attached to Form 2303),Pay the registration fee and documentary stamp taxes (DST) at the AABThe rate of documentary stamp tax on original issuance of shares of stock shall be PHP 1.00 for every PHP 200.00 or fractional part thereof, of the par value, of such shares of stock,Print receipts and invoices at BIR PHP 3,500

Marketing

We found that wineries spend an average of 100 pesos per case for marketingwholesale wine.

TABLE 1 Summary of Winery Labor Requirements and annual Costs (Php) by Position and Winery Size

20142016 20182020 2022

2,000 Cases5,000 Cases10,000 Cases15,000 Cases20,000 Cases

Full time

General Manager760,913.881,107,801.091,218,581.21,273,971.255

Winemaker716,154.24886,240.87951,142.351,046,256.5851093,813.7

Assistant winemaker740,772.04851,887.85

Cellerman494,146.425617,683.03679,451.335710,335.485

Warehouse499,741.38522,456.9

Public Relations915,334.64

Customer Service706530.915738,645.96

Sales Manager1063486.0451,111,829.46

Office Manager557,272.52612983.27715,482.845

Clerical566,209.445

Total Full-Time Labor716,154.242,141,301.183,233,883.996,567,805.7758,499,967.535

Part-Time

Clerical209,475.115209,475.115

Customer Service209,475.115418,950.23418,950.23628,425.345

Total Part-Time Labor209,475.115418,950.23418,950.23418,950.23628,425.345

TOTAL LABOR925,629.3552,560,251.413,652,834.226,986,756.0059,128,392.88

TABLE 1 shows the estimated labor cost in every job position. In a small scale winery which produces only 2,000 cases of pineapple wine general manager, assistant wine maker, celleran , warehouse ,public relations, customer service, sales manager, office manager, clerical and customer care is not part of the labor requirements. As the number of targeted production increases the need for workers and those highly skilled is a must to sustain and to deliver quality products due to increase in production.

TABLE 2:Total, Variable, and Fixed Costs by Winery Size

20142016 2018 20202022

Variable Cost2,000 Cases5,000 Cases10,000 Cases15,000 Cases20,000 Cases

Pineapple737,908.0951,845,915.6753,693,815.995,540,723.877,387,631.75

Cooperage828,716.7852,073,078.4354,146,156.926,219,235.2658,292,313.61

Packaging1,101,980.41532,756,661.455,513,322.98,269,984,3511,026,645.8

Mobile Bottling191,574.05455,828.1051,783,079.2921,305,308.1451,721,601.4

Taxes and Dues259,304.1608,850.311,905,345.5251,755,205.182,322,999.515

Full Time Labor716,435.842,143,473.1153,237,164.146,574,467.5458,508,589.11

Part Time Labor209,557.485419,375.175419,375.175419,375.175629,062.76

Marketing203,834.055331,436.1563,169.555538,197.69512,569.21

Utilities604,49.275124,333.985197,142.175275,550.995340,518.305

Office Supplies16,567.5839,201.4173,928.315109,682.74134,415.12

Other46,120.5559,9691.215199,382.43239,930.99286,752.255

Total Variable Costs4,372,448.231,089,7847.892,0840,342.553,124,766.95411,763,098.6

Insurance51,493.825112,012.61,837,00.665235,226.46286,752.255

Maintenance22,388.6259,366.68105,291.845151,217.01192,661.67

Property Tax158,839.64529,264.29394,717.84540,546.82696,071.165

Depreciation14,489,563.092,880,025.55,212,509.4757,556,522.7810,057,328.41

Interest395,491.85551,653.32945,783.541,304,8071,647,491.4

Cost of Equity475,480.72642,150.54642,150.541,507,798.6951,933,710.7

Total Fixed Costs2,543,402.234,484,472.837,484,153.9051,1296,118.7714,814,015.61

TOTAL COST6,918,565.11,538,230.7228,324,496.4542,543,780.7155,977,114.15

This table includes all the capital, investment and expenses incurred in production of the wine.

2014

Variable Cost500 ML bottle

Pineapple30.75

Cooperage34.50

Packaging46

Mobile Bottling7.99

Taxes and Dues10.80

Full Time Labor29.85

Part Time Labor8.73

Marketing8.50

Utilities2.51

Office Supplies0.70

Other1.92

Total Variable Costs182.19

Insurance2.15

Maintenance0.93

Property Tax6.62

Depreciation603.73

Interest16.48

Cost of Equity19.81

Total Fixed Costs105.96

TOTAL COST288.27

TABLE 3: EXPLICIT COST PER BOTTLE OF PINAPPLE WINE (500Ml)

PRICING

1st we have computed the total economic cost which includes Total, Variable, Fixed cost and implicit cost amounting P925,694,355 for 2000 cases. To compute the price We also considered the prices of wine from other competitors selling with variety of wine flavours and we found out that it is very much expensive. Therefore we

Revenue Total Econmic Cost = profit

PROJECTED CASHFLOW

Our company will be producing only 2,000 cases per month.

YEAR 2,000 Cases

118;976,956

21,840,909.6

31,046,953.2

41386172.6

514744396.1

62811628.5

72875139.6

82930191.6

92526477.9

102576563.3

COST ANALYSIS

Explicit Costs and Implicit Costs

Economists have classified types of costs as explicit (accounting) costs, and implicit costs.Implicit cost are those that is represented by lost opportunity in the use of a company's own resources, excluding cash. The implicit cost for a firm can be thought of as the opportunity cost related to undertaking a certain project or decision, such as the loss of interest income on funds, or depreciation of machinery used for a capital project.Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability. This contrasts with less-tangible expenses such as goodwill amortization, which are not as clear cut regarding their effects on a business's bottom-line value.

The Implicit Cost

-the time and effort that we, as the owner of Bicollano Company, puts into the maintenance of the company, rather than working on expansion of our business, is viewed as an implicit cost of running the business. In corporate finance decisions, implicit costs should always be considered when coming to a decision on how to allocate resources. We also estimate our own time to be worth P25,000 each . we are not paying explicit rent, because we own the building we are operating in. If we would rent it out, however, we could be earning P15,000.

Implicit Cost=25,000 x 2 + 15000=P65,000

The Explicit Cost

-all the cost incurred during the production of our product is considered as an explicit cost.With these expenses, it is easy to see the source of the cash outflow and the business activities to which the expense is attribute. Since we are running a small business and incur the cost ( refer to the table ___) we incurred a total of 6,918,565.1

Explicit Cost= 6,918,565.1

TOTAL ECONOMIC COST=P 65,000+ 6,918,565.1 =P6 983565.1

References:

http://www.philstar.com/agriculture/165676/daet-pineapple-sweetest-world PHILIPPINE LAWS, STATUTES AND CODES - CHAN ROBLES VIRTUAL LAW LIBRARYhttp://www.doingbusiness.org/data/exploreeconomies/philippines/starting-a-businessHealth Action Information Network, 2004http://www.dineshbakshi.com/as-a-level-economics/price-system-theory-of-firm/119-revision-notes/1737-factors-affecting-demandhttp://www.investopedia.com/terms/i/implicitcost.asp